By Rory Eric Jurman and Steven S. Cula
As appeared in Law360 Expert Analysis on November 21, 2016
Carrier Implications: Excess Exposure and Punitive Damages
While Florida Statute 768.81 abrogated joint and several liability in the state, subsection(4) creates an exception for pollution. By denying coverage and terming a substance a"pollutant," the insurer takes comparative negligence away from its insured, meaning that the insured can potentially be responsible for damages in the case. The argument is not too tenuous that this is all for the benefit of the insurer's coverage position.
Particularly where the severity of the injuries alleged as a result of the subject accident far exceed the policy limits, any judgment against the insured would more than likely subject the insured to excess exposure. Further, the insured may be liable for punitive damages. To avoid a judgment in excess of policy limits or for punitive damages, and thus avoid the potential liability for bad faith, carriers should consider tendering policy limits to seek global resolution of the claim.Where a insurer ultimately determines that it is justified in asserting a defense based on a pollution exclusion, the insurer must do so only after careful analysis of the case law and statutory language surrounding "pollution."
Several courts have indicated that the Comprehensive Environmental Response,Compensation and Liability Act (CERCLA) is an appropriate tool when determining whether or not a substance is a "pollutant or contaminant." 42 U.S.C. §9601 (33)specifically states:
[T]he term "pollutant or contaminant" shall include, but not be limited to, any element,substance, compound or mixture, including disease-causing agents, which after release into the environment and upon exposure, ingestion, inhalation, or assimilation into any organism… will and may reasonably be anticipated to cause death, disease, behavioral abnormalities… except that the term "pollutant or contaminant" shall not include petroleum… and shall not include natural gas, liquefied natural gas or synthetic gas ofpipeline quality (or mixtures of natural gas and such synthetic gas).
Florida's Pollutant Discharge Prevention and Control Act, which is the Florida analog of CERCLA, defines hazardous substances as those substances enumerated under CERCLA, and proceeds to define "pollutant" as to include "any product as defined in§377.19 Fla. Stat., pesticides, ammonia, chlorine, and derivatives thereof, excluding liquefied petroleum gas."
Treatment of Contaminated Building Components and Indoor Exposure
This issue is particularly salient in the context of contaminated building components.Most notably, insurers have sought to deny coverage of claims arising out of construction with Chinese drywall and laminate flooring. Almost all of the decisions rendered in cases based on Chinese drywall liability addressed the applicability of the pollution exclusion. Courts tended to approach analysis by considering the intended scope of the exclusion, as is described earlier in this article. The inquiry was whether or not the pollution exclusion should preclude coverage in contexts other than industrial or ambient environmental pollution. See, e.g., Travco Insurance Co. v. Ward, 715 F. Supp.2d 699 (E.D. Va. 2010). The Travco court concluded that the pollution exclusion is not limited only to industrial and ambient environmental pollution, and the exclusion precluded coverage for defense and indemnity of third-party Chinese drywall claims. Id.Notably, the Eastern District of Virginia is also the venue which will at least initially decide whether or not the pollution exclusion precludes coverage in claims arising out of construction with Chinese laminate flooring. See In re Lumber Liquidators Chinese-Manufactured Flooring Products Marketing, Sales Practices and Products Liability Litigation, MDL No. 2627, -- F. Supp. 2d – (June 12, 2015).
Recent cases in Florida, or under Florida law, have applied total pollution exclusions to Chinese drywall. In First Specialty Insurance Corp v. Milton Const. Co., the court,applying Florida law and relying on Deni Associates, held that the total pollution exclusion excluded coverage for liabilities arising from the installation of Chinese drywall. No. 12-20116-CIV, 2012 WL 2912713, (S.D. Fla. 2012). The Court in Milton also found persuasive the decisions in General Fidelity Ins. Co. v. Foster, 808 F. Supp.2d 1315 (S.D. Fla. 2011) and Colony Insurance Co. v. Total Contracting & Roofing, Inc.,2011 WL 4962351 (S.D. Fla. 2011). In both of those cases, the courts held that the pollution exclusions were unambiguous and applied to liabilities arising from Chinese drywall.
Florida's 2nd DCA found that the injurious elements released by the Chinese drywall fit the definitions of "pollution" and "contaminant" under Fla. Stat. Ann. § 403.031(1), (7).Id. Because both pollution and contaminants were excluded under the policy, the court agreed that coverage was excluded. Peek v. Am. Integrity Insurance Co. of Florida, 181So. 3d 508, 511 (Fla. 2nd DCA 2015).
In CDC Builders Inc. v. Amerisure Mut. Insurance Co. (S.D. Fla. 2011), it was undisputed that the injurious gases emitted from the Chinese drywall were pollutants, interms of the pollution exclusion. Id. However, the insured argued that the pollution exclusion should not apply due to the "contractor job site exception" to the pollution exclusion. The court found that the insurer had no duty to render coverage because the"contractor job site exception" to the pollution exclusion would only have applied to damage that occurred during construction on the job site. Id. The court relied on the present tense of the exception and the plain meaning of the title "contractor job site exception" to narrow the exception to the time when contractor was working on the site.The damage in this case occurred after construction had finished, so the exception did not apply and coverage was excluded under the pollution exclusion. Id.
By contrast, the court in Auto-Owners Insurance Co. v. Am. Bldg. Materials Inc., 820 F.Supp. 2d 1265 (M.D. Fla. 2011), applied a similar requirement that contractor be involved in ongoing construction at the time of the damage, but this time it was applied to the pollution exclusion. Id. The court interpreted the pollution exclusion for damage caused by the release of gases from the Chinese drywall to be limited only to damage caused while the installer is installing the Chinese drywall. Since the damage did not occur until after installation, the pollution exclusion did not apply and insurer had to provide coverage. Id. Interestingly, the court here also relied on the language and present tense of the pollution exclusion in deciding that it only applies during construction. Id. Though the insurer here could have been more effective in its drafting of the pollution exclusion to ensure it is applied broadly and without a temporal limitation, this case is an exception to the current trend in Florida favoring application of pollution exclusions.
In addition to Chinese drywall, Florida courts have held that injuries caused by the application of spray polyurethane foam are also excluded under an absolute pollutionexclusion. In so doing, the courts decided that gases emitted from spray polyurethane foam constitute pollutants. In Tech. Coating Applicators Inc. v. U.S. Fid. & Guar. Co., a roofing contractor applied spray polyurethane foam to the roof of a school, causing students and school employees to have respiratory problems. 157 F.3d 843 (11th Cir.1998). The Eleventh Circuit Court of Appeals, under Florida law and relying on Deni, held that spray polyurethane foam falls within the pollution exclusion. Id. That court further held that the pollution exclusion applies to the gases emitted from the spray polyurethane foam even though the application of the foam was proper. The court cited Deni's comments that even products that normally do not cause injury may fall under the definition of "irritant" and under the pollution exclusion, if said products have the ability to produce an irritating effect. Id. Therefore, the Tech Coating court reasoned, a product that causes no harm when used properly still may be classified as a pollutant under the exclusion. Id.
Furthermore, the similarities in injuries and the causes of the injuries between Chinese drywall and polyurethane foam suggests that both types of cases will have the same outcome. Most notably, both construction materials have been alleged to cause bodily injury by off-gassing. Moreover, they have both caused the same bodily injuries, such as dry eyes, runny nose, itchy throat and respiratory problems. See In re Chinese Manufactured Drywall Prod. Liab. Litig., 680 F. Supp. 2d 780 (E.D. La. 2010); Renzi v.Demilec (USA) LLC, No. 12-80516-CIV (S.D. Fla. 2013). The complaints in both of these cases were almost identical, the injuries were the same and resulted from off gassing. In re Chinese Manufactured Drywall dealt with off-gassing from Chinese drywall and in Renzi the injury was due to off-gassing from spray polyurethane foam.The Southern District of Florida Court held that off-gassing in the Chinese drywall context constituted pollution. Gen. Fid. Insurance Co. v. Foster, 808 F. Supp. 2d 1315(S.D. Fla. 2011). These cases demonstrate strong precedent that off-gassing from construction materials in general can be construed as pollutant and that potential insurance coverage may be denied under a pollution exclusion.
Insurers have employed various iterations of the "pollution exclusion" to limit or eliminate coverage for damages resulting from pollution. Each iteration has been met with extensive litigation, making the effectiveness of the exclusion unpredictable.Treatment of the exclusion in all jurisdictions tends to be one of two types. Courts tend to emphasize either the scope and purpose of the exclusion, or the language of the exclusion. Where an insurer ultimately determines that it is justified in asserting a defense based on a pollution exclusion, the insurer must do so only after careful analysis of the case law and statutory language surrounding "pollution." In Florida, this includes reference to case law on the issue and to both CERCLA and the provisions of Florida Stat. 768.81.T
he Florida case law relies mainly on the precise language of the exclusion and is quick to find pollution exclusions unambiguous. This treatment lends itself to arguments for almost any substance being excluded as a pollutant. Therefore, Florida seems like the ideal venue for insurers to litigate this issue and even reject settlements that would have been reasonable in other jurisdictions.
The current trend in Florida does not seem to be fading away because courts are either bound or persuaded by authoritative case law demanding strict interpretation of policy language. This is further evidenced by the courts' expressed departure from the majority view in an effort to follow Florida's law. However, insurers in Florida would be wise to proceed with caution when using litigation to continually push to widen the scope of what may be considered pollution for purposes of the pollution exclusion. Too many far fetched cases may force legislative or judicial repositioning of Florida's view in order to conform with the current majority view, where such pollution exclusions are interpreted with a more common sense approach and elements like dirty swimming pools and bodily fluids may not be excluded.